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Demographic shift in Asia outpacing its economic transition

A new report from the Credit Suisse Research Institute (CSRI) has highlighted the divergence between the pace of economic growth in Asian economies in comparison to their fall in fertility rates.

The CSRI conducted a proprietary survey of 6,000 people in the six most populous countries in Asia. This survey uniquely explores the impact of demographics on supply-side factors like labor and savings, as well as social preferences that drive demographic and work choices. The research team combined this survey with comprehensive secondary research to answer some of the key questions for the global economy due to Asia’s ageing population: the supply of labor, and the supply of capital.

In the ten years ending 2019, ten economies in Asia (A-10); China, India, Indonesia, Japan, Philippines, Vietnam, Thailand, South Korea, Malaysia, and Taiwan (Chinese Taipei), made up 50% of incremental global GDP and 60% of incremental goods exports, and supplied USD 5 trillion in capital to the rest of the world.

Demography is changing faster
The A-10 economies have grown two to three times faster than the pace at which the EU/USA grew at similar income levels, but the drop in their fertility levels has been five to seven times faster. Most of the A-10 countries have reached low fertility levels at much lower per capita income levels than in the EU/USA. They are aging faster too: whereas the average age in the EU/USA rose from 30 to 40 over half a century, this occurred in just 17 years in South Korea and 22–24 years in Japan, China and Thailand.

Productivity matters more than headcount
The A-10 countries made up more than half of incremental global working age population in 2010, but will see a shrinking workforce by 2032. A continuing shift away from agriculture can help release workers for industry and services, but, most importantly, the quality of the workforce may matter more than its quantity. Despite a growing preference for services employment, as corroborated by the survey, the supply of industrial labor to global value chains from A-10 countries is less at risk than feared, at least over the coming decade. Risks to supply can come from geopolitical conflicts, which can hamper productivity growth. Labor-supply-related challenges could intensify after 2035.

Asia to continue providing capital
The A-10 countries are also a major provider of capital to the world, with USD 15 trillion in net international assets. Given that A-10 dependency ratios (the number of children and retired elders per 100 workers) are set to rise, many people fear a drop in their savings. However, the survey finds that due to insufficient pensions and public healthcare in most of the A-10 countries, households may continue to save for emergencies and retirement over the coming decade. Further, as people age, they become more cautious: Japan had the lowest percentage of respondents who thought their pensions were sufficient, despite Japan having the largest pension assets in the A-10. Rising dependency ratios also mean weak real house prices (China, Japan and South Korea are most at risk): reducing realestate investments would mean a shift toward financial assets. Most A-10 economies still need to increase their pension wealth, implying continued strong demand for safe assets.

Slower growth, lower real rates/inflation
Future risks to A-10 growth are less related to labor supply, and more to sluggish growth in capital deployment, particularly in real-estate and infrastructure investments. Further, in several of the A-10 countries, total factor productivity growth (or efficiency of use of labor and capital) has fallen in recent years, creating a headwind for global growth. Separately, the authors do not see demography affecting inflation meaningfully, with the A-10 dependency ratio unlikely to rise in the next decade (assuming younger economies will increase their participation in global value chains). Combined with the continued demand for safe assets and slower productivity growth, this would mean low interest rates again once the current macroeconomic volatility subsides. A sharp rise in the A-10 dependency ratio that could affect inflation is only likely to occur after 2035.

Neelkanth Mishra, Co-Head of Asia Pacific Strategy and India Equity Strategist, Securities Research at Credit Suisse, who led the team that authored the report, commented: “Our research deepens an understanding of the diversity of the Asia Pacific region amidst the shared challenge of demographic changes. Even as demographic transitions accelerate in Japan and South Korea, for example, they are remarkably slow in Indonesia and the Philippines. While China and Thailand run the risk of growing old before they become wealthy, India’s challenge over the coming decade would be in deploying its burgeoning workforce. With the help of our proprietary survey, we are able to draw some bold conclusions across the region which will be vital for investors as they navigate the current uncertain macro environment.”

Erica Poon Werkun, Head of Securities Research, Asia Pacific at Credit Suisse commented: “Asia is home to nearly 60% of humanity and its economic rise in the last few decades has transformed the global economy. Asia has also proved to be the manufacturing hub of the world and a net supplier of savings that has supported consumption in the developed world. However, with the dynamism of Asia, particularly China, having been so central to the fortunes of the global economy, a key question going forward is what will be the implications of a significant aging and shrinking in the workforce within this engine of growth, both within the region and outside of it. Our work highlights consequences for global growth, inflation, and interest rates and, in turn, investors and companies.”

The ‘The global effects of Asia’s aging population’ report is available at: